3 reasons to buy Microsoft shares – now!

Ramki Ramakrishnan is an Elliott Wave specialist whose work is respected by
many of the world’s best traders. He is an international banker and treasury
manager with over 30 years experience, most of which has been directly
associated with the financial markets. Ramki’s unique perspective on the markets
and his penchant for identifying low-risk trades are what draws people to his
blog at wavetimes.com.

Ramki has also written a book “Five
Waves to Financial Freedom” which is fast becoming the new reference book on
the subject of Elliott Waves, given it’s easy to understand style, and richly
illustrated content from recent market movements.

Microsoft
MSFT, -1.33%
shares traded up as much as 5.65% last Friday, after the technology giant reported on Thursday evening its best quarter yet. You must be wondering whether you have missed the boat! Fear not. There is still some easy money to be made on this stock. Let us now discuss 3 reasons why you should buy Microsoft shares, at least for the short-term!

1. Microsoft shares are in a uptrend

Whenever you consider whether to buy a company's shares, one of the first things you should do is to figure out if the charts show the shares in an uptrend. This does not need any deep knowledge of technical analysis. Just go to any of the free sites that offer charts, such as BigCharts, and often a casual inspection should show whether we see higher highs and higher lows in the current trend. If you are a bit more savvy, then you will look at indicators such as the Directional Moving Index. Microsoft shares are clearly in a uptrend. So you should look to trade this stock from the long side only, at least until the trend changes.

2. Elliott Wave Analysis shows Microsoft shares are in a third wave rally

There are some people who swear by Elliott Wave analysis, (and I belong to that tribe!). Briefly, Elliott Wave theory states that an impulse wave in a uptrend will be made up of five sub waves. Waves 1, 3 and 5 are all movements in the direction of the trend, with the third wave being the most powerful. As you can see from the chart below, we are in the middle of a powerful 3<sup>rd</sup> wave. Waves 2 and 4 are counter-trend movements as they serve to correct the immediately preceding wave. You will also see that the 2<sup>nd</sup> wave developed into a complex triangular pattern. The importance of this formation is when we get a fourth wave later on, (once the 3<sup>rd</sup> wave is completed and before the 5<sup>th</sup> wave starts), that correction will likely be a simple formation. Elliott Wave principle states that corrections tend to alternate between simple and complex patterns. As a trader, this is an important clue, because you can add to your longs when you get the fourth wave dip. More information on how to use Elliott Waves to find low-risk trades is available for free on my blog WaveTimes.

3. The likely target for the 3rd wave is around $31.50

When you spot a third wave rally unfolding, and you know the trend is strong, as it is with Microsoft shares, you will anticipate the ending point for the 3<sup>rd</sup> wave by doing some simple calculations. You will measure the distance traveled by the 1<sup>st</sup> wave, and compute what 161.8% of this will be. Next, you will add that number to the starting point of the 3<sup>rd</sup> wave. If you have some advanced software, you can save some time and arrive at the target by doing what I have shown in the chart below, but there is really no need for anything more than a calculator! As you can see, I am anticipating the 3<sup>rd</sup> wave to reach $31.56, and that is a conservative target.

Now that you have done some basic investigation, how should you go ahead? Clearly, it is always best to scale in gradually, so that your faith won't be shaken by any mild correction. Money management is always essential for success in the business of trading. There are some good first supports at $29.25 but stronger levels at $28.65. A dip to $28.65 will be a bonus for many traders, because your stop can then be placed just below $28.45.

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